I believe the key to building real net worth is possessing the ability to make your assets work for you. Financial success is NOT about how much you can earn. There is a new acronym out there called HINRY ( High Income Not Rich Yet ). Making $350,000 a year does not make one wealthy.
What does the term "wealth" mean? The definition of wealth is "a great quantity or store of money, valuable possessions, property, or other riches". If a $500,000 object ( i.e. a house ) is possessed by someone, yet the debt they owe on the house is $450,000, then they truely only possess $50,000 in wealth ( i.e. Net Worth ).
Tuesday, October 28, 2008
Wednesday, October 22, 2008
Vanguard's Emerging Markets (VWO)
I'm not convinced that equities have hit bottom, but I do know we must be very close. One area that has sunk faster than the S&P 500 is emerging markets. While the broader markets have been down about 35-40%, emerging markets have dropped 50-65%. Even though I don't know that we have seen the bottom yet, I do know that entering emerging markets at this time has become almost irresistible.
How can one possibly resist a graph like this...
Vanguard's Emerging Markets ( VWO ) Exchange Traded Fund is at its lowest point EVER since it's inception - $22.19 !!! Yes, emerging markets are perhaps one of the most risky areas, but it's going to be quite difficult to lose money at these prices.
Learn More About Emerging Markets
How can one possibly resist a graph like this...
Vanguard's Emerging Markets ( VWO ) Exchange Traded Fund is at its lowest point EVER since it's inception - $22.19 !!! Yes, emerging markets are perhaps one of the most risky areas, but it's going to be quite difficult to lose money at these prices.
Learn More About Emerging Markets
Monday, October 13, 2008
Some Advice
Stay the Course
The last 9 business days have been quite a ride. Today we had some relief from the relentless 22 percent plus freefall of the Dow and S&P 500 over the course of two weeks. Many people paniced and sold their equities at a very low price in an attempt to salvage the remaining value of their shares. For those that held steady and remained in the equities market were rewarded for their patience. The markets gained back almost half today of what they gave up over the last two weeks.
Dollar Cost Averaging
In spite of the gains today, there remains great value right now. Now is the time to be buying. I do think we'll continue to see some erratic behavior in the markets, but one should seriously be considering buying as much as possible at these fire sale prices. These are certainly the times that the Warren Buffet's of the world get richer. The past 1+ year has been an opportunity to store up cash and wait for the existing real estate and credit bubbles to completely deflate. Now ( and the next several months ) is the time to pounce.
Not only is now a good time to buy large quantities of equities, but it's also a wonderful time for those slow and steady Dollar Cost Averagers to round up a greater number of shares with the same dollars. Case in point, I contribute $174 out of each pay check to my 401K. Although the value of my existing shares has dropped about 30 percent, I will now be able to get about 30 percent more shares with my same $174. I went from purchasing 8.4 shares last month for $174 to 12.9 shares purchased with $174. That is the power of Dollar Cost Average.
Diversification
Up until today, the Dow lost 38% of its value since July 2007. During the same period, the S&P 500 lost 42%. Me? I appeared to beat the markets with only a 26% reduction in asset values. As I stated toward the end of last year, I intentionally have been storing up cash this year in anticipation of the financial meltdown in this country that would bring buying opportunities. Fortunately, by the time the market crashed the last two weeks, I held about 27% of my portfolio in cash. I attribute my beating th market to the fact that I was not overexposed in equities. Additionally, over the past two years I've included gold and platinum bullion coins in my portfoliio. With equities tanking, commodities have gone up considerably. I've seen a 40+ percent increase in my bullion values over the past 9 months. Gold, too, has helped diversify myself such that my overall portfolio downturn did not match the S&P 500.
The last 9 business days have been quite a ride. Today we had some relief from the relentless 22 percent plus freefall of the Dow and S&P 500 over the course of two weeks. Many people paniced and sold their equities at a very low price in an attempt to salvage the remaining value of their shares. For those that held steady and remained in the equities market were rewarded for their patience. The markets gained back almost half today of what they gave up over the last two weeks.
Dollar Cost Averaging
In spite of the gains today, there remains great value right now. Now is the time to be buying. I do think we'll continue to see some erratic behavior in the markets, but one should seriously be considering buying as much as possible at these fire sale prices. These are certainly the times that the Warren Buffet's of the world get richer. The past 1+ year has been an opportunity to store up cash and wait for the existing real estate and credit bubbles to completely deflate. Now ( and the next several months ) is the time to pounce.
Not only is now a good time to buy large quantities of equities, but it's also a wonderful time for those slow and steady Dollar Cost Averagers to round up a greater number of shares with the same dollars. Case in point, I contribute $174 out of each pay check to my 401K. Although the value of my existing shares has dropped about 30 percent, I will now be able to get about 30 percent more shares with my same $174. I went from purchasing 8.4 shares last month for $174 to 12.9 shares purchased with $174. That is the power of Dollar Cost Average.
Diversification
Up until today, the Dow lost 38% of its value since July 2007. During the same period, the S&P 500 lost 42%. Me? I appeared to beat the markets with only a 26% reduction in asset values. As I stated toward the end of last year, I intentionally have been storing up cash this year in anticipation of the financial meltdown in this country that would bring buying opportunities. Fortunately, by the time the market crashed the last two weeks, I held about 27% of my portfolio in cash. I attribute my beating th market to the fact that I was not overexposed in equities. Additionally, over the past two years I've included gold and platinum bullion coins in my portfoliio. With equities tanking, commodities have gone up considerably. I've seen a 40+ percent increase in my bullion values over the past 9 months. Gold, too, has helped diversify myself such that my overall portfolio downturn did not match the S&P 500.
Monday, October 6, 2008
Credit Default Swaps
Credit Default Swaps are emerging now as one of the key culprits in our current economic crisis. Apparantly, the total amount of this credit derivative product is in the range of $60 trillion. Yes, TRILLION. To put that into perspective, that is almost 6 times the entire US Gross Domestic Product. Yet, this $60 trillion of "insurance" only covers about $5 trillion in corporate bonds.
More importantly, however, the world of Credit Default Swaps is completely unregulated since the Commodity Futures Modernization Act of 2000 intentionally barred regulation of these trades.
As Warren Buffet has been declaring for 6+ years now, these types of instruments should not exist without collateral behind them of which there is none for Credit Default Swaps. Basically, investment firms like Lehman Brothers are out of business because they gambled with CDSwaps and lost and now the dominos are beginning to fall in the rest of the worldwide economy.
More importantly, however, the world of Credit Default Swaps is completely unregulated since the Commodity Futures Modernization Act of 2000 intentionally barred regulation of these trades.
As Warren Buffet has been declaring for 6+ years now, these types of instruments should not exist without collateral behind them of which there is none for Credit Default Swaps. Basically, investment firms like Lehman Brothers are out of business because they gambled with CDSwaps and lost and now the dominos are beginning to fall in the rest of the worldwide economy.
Wednesday, October 1, 2008
Hang In There...
I've allowed entirely too much time ( 6 months ) to pass since my last entry. Things certainly have changed haven't they? Particularly, the last two weeks. Like you, I've been absorbing a lot of information about the current financial situation we all find all ourselves a part of in this country.
It appears that Congress will go ahead and pass the Economic Rescue Plan tonight in spite of it failing on Monday. There, apparantly, have been several changes to the bill that make it more palatable for the members of congress. The bill is certainly not perfect and, based on many Congressman's comments on C-SPAN this evening, they are not convinced it will solve all our problems, but they clearly don't have a choice and must pass something.
The other evening I watched Bill Clinton on Larry King Live. He had some very interesting comments. He mentioned that the government bailouts of Chrysler and Mexico during his tenure actually allowed the government to make money from those situations. He was pretty optimistic that the Treasury Department could sit on these faulty mortgages for a while and then make money off them as the economy improves. He felt like much of the $700 billion could be paid back and that the government could actually see a profit. That, obviously, will only reveal itself over time, but that would certainly be a positive for the country.
Like you, I've seen a substantial reduction in our Net Worth since August 2007. I did not move all our money into cash early on, but I have slowly put us in a situation where our portfolio is made up of about 25% cash at the moment. I have not purchased any risky instruments this year as I continue to store up cash waiting for the precise time to pull the trigger on new purchases. Like the year 2000 and 2001, the upcoming year will present MANY MANY opportunities for acquiring shares at very low prices. Today, Warren Buffett bought $3+ billion of GE stock. This is what smart people do. But, let me be clear, they are not market timers. These people are long term investors who prepare themselves for downturns in the economy so as to take advantage of low prices. Capitalism is a boom/bust economic model. For those who believe the economy can only continue to go up are fools.
Of course, you have to be able to stomach these hard times. Personally, this is the toughest situation I've seen in my lifetime. Over the years, I've had a couple rare situations where our investments dropped $5,000 in one day. On Monday, in one day, I saw our funds drop $11,000. Now, what if I would have panicked and immediately moved that money to a Money Market fund? I would have lost that money. Yet, I'm staying the course and just the next day our investments were back up about $6,000. Additionally, with my current mix, I'm on target to make $10,000 in dividends alone. There is no way I could have achieved that in a Money Market fund.
Hang in there. Be a long term investor in low cost funds and do not be a "trader" coming in and out of the market with the intent to time the market.
It appears that Congress will go ahead and pass the Economic Rescue Plan tonight in spite of it failing on Monday. There, apparantly, have been several changes to the bill that make it more palatable for the members of congress. The bill is certainly not perfect and, based on many Congressman's comments on C-SPAN this evening, they are not convinced it will solve all our problems, but they clearly don't have a choice and must pass something.
The other evening I watched Bill Clinton on Larry King Live. He had some very interesting comments. He mentioned that the government bailouts of Chrysler and Mexico during his tenure actually allowed the government to make money from those situations. He was pretty optimistic that the Treasury Department could sit on these faulty mortgages for a while and then make money off them as the economy improves. He felt like much of the $700 billion could be paid back and that the government could actually see a profit. That, obviously, will only reveal itself over time, but that would certainly be a positive for the country.
Like you, I've seen a substantial reduction in our Net Worth since August 2007. I did not move all our money into cash early on, but I have slowly put us in a situation where our portfolio is made up of about 25% cash at the moment. I have not purchased any risky instruments this year as I continue to store up cash waiting for the precise time to pull the trigger on new purchases. Like the year 2000 and 2001, the upcoming year will present MANY MANY opportunities for acquiring shares at very low prices. Today, Warren Buffett bought $3+ billion of GE stock. This is what smart people do. But, let me be clear, they are not market timers. These people are long term investors who prepare themselves for downturns in the economy so as to take advantage of low prices. Capitalism is a boom/bust economic model. For those who believe the economy can only continue to go up are fools.
Of course, you have to be able to stomach these hard times. Personally, this is the toughest situation I've seen in my lifetime. Over the years, I've had a couple rare situations where our investments dropped $5,000 in one day. On Monday, in one day, I saw our funds drop $11,000. Now, what if I would have panicked and immediately moved that money to a Money Market fund? I would have lost that money. Yet, I'm staying the course and just the next day our investments were back up about $6,000. Additionally, with my current mix, I'm on target to make $10,000 in dividends alone. There is no way I could have achieved that in a Money Market fund.
Hang in there. Be a long term investor in low cost funds and do not be a "trader" coming in and out of the market with the intent to time the market.
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